The Corporate Restructuring Experience: Employers and Workers in Transition

‘The Corporate Restructuring Experience: Employers and Workers in Transition’, the fifth in this year’s seminar series, ‘Economic Futures: Wealth and Well-Being in the UK and Japan’, brought together complementary knowledge on corporate restructuring in Japan and a case study of restructuring by the Toyota Group.

Summary

The Chair, Louis Turner, Chief Executive of the Asia-Pacific Technology Network and an Associate Fellow of Chatham House, introduced the topic of restructuring and referred to the history of Japanese companies and how they dealt with crises in the 1980s, 90s and the current decade as being extremely distinctive.

 

Dr Gregory Jackson, Reader in Strategy and Comparative Management at King’s College London, began by defining restructuring as any shifts in organisational structures including mergers and acquisitions, internal reorganisation and outsourcing and downsizing; all of which are often caused by financial stress and with the purpose of debt reduction.

 

Referring to lifetime employment as being a normative notion in Japan, Jackson said that this picture of stability is belied by the fact that Japanese organisations are restructuring; that the number of good jobs in Japan is declining and the number of part-time employees is rising. At 25% of employees, the number of part-timers is very high by European standards. Seniority-based pay, a concomitant to lifetime employment, is also undergoing change as merit-based pay is making inroads. Nevertheless, 81% of Japanese firms still express a commitment to lifetime employment, though the core is shrinking and, compared to the UK and the USA, employment is still much more stable in Japan (though similar to the French situation in this respect). Despite the restructuring which is being undertaken, it still is extremely rare to be fired in Japan.

 

Most Japanese firms today are adopting an employment system somewhere in the middle of the spectrum, applying a hybrid system combining elements of the lifetime employment/seniority-based pay system and the merit-based pay system.

 

In talking about mergers and acquisitions in Japan, which have increased significantly over recent years, Jackson said that they tend not to include hostile takeovers and compared to the UK, there tends to be a stronger relationship between the bidder and target as well as more private negotiation. 20-25% of poorly performing companies in Japan are being targeted for mergers and acquisitions; though the right firms are being targeted, it is hard to say whether post-merger firms are doing any better, as the evidence so far is inconclusive.

 

In summary, Jackson said that Japan demonstrates a normative commitment to lifetime employment and seniority-based pay, but that a declining number of workers are enjoying jobs with this level of security. As to mergers and acquisitions, Jackson said that Japan continues to engage in them in its own way. As to whether Japan is restructuring enough, Jackson said that though restructuring levels in Japan are lower than those in the UK, this doesn’t mean that the Japanese approach is suboptimal and that Japan is more dynamic than initial appearances may suggest.

 

The second presentation by Dr Faith Hatani, Lecturer in Strategy at the University of Surrey, and an Associate Fellow of the Advanced Institute of Management (AIM) Research in London, marked a shift from a macro-level study of company structures to a case study of Toyota, a leading Japanese automotive company.

 

The Toyota Group is a group of companies that work together and mostly share the Toyota brand, including Toyota Motor Corporation, subsidiaries and affiliates. Its suppliers, Aisin Seiki Co, Denso Corporation and Toyoda Machine Works (TMW) also supply other companies in Japan and abroad. Koyo, initially an affiliate is now a supplier. The Group’s reorganisation from 1995 to 2005 was part of its vision to continue to grow internationally.

 

Defining network restructuring as being a new arrangement to improve patterns of inter-firm relationships or control mechanisms in a business group, Hatani said that the aim is for the restructuring to result in increased international competitiveness and the expansion of business activities overseas.

 

Global automotive giants have restructured in the past, but not with a great deal of success: Daimler-Chrysler merged in 1998 only to dissolve in 2007; Renault-Nissan allied in 1999 but face an uncertain future according to Hatani; General Motors set up Delphi, a spin-off of its in-house research centre, in 1999 but this went bankrupt in 2005; and Ford similarly spun-off Visteon in 2000 which is suffering heavy losses. Toyota successfully spun-off its in-house research centre at the end of the Second World War but this is now an outmoded response in our modern, internationally competitive world as Delphi and Visteon have learned to their regret.

 

Hatani referred to different modes of restructuring, including: the combining of relatively small subsidiaries and consolidating them, otherwise known as lump-sum control; involvement, referring to the engagement in joint ventures with key suppliers; delegation, whereby the most competitive suppliers are given significant autonomy and responsibility; and rank-order where, for instance, Toyota suppliers have a prestigious rank within the Toyota hierarchy. She then went on to give concrete examples of these strategies.

 

Hatani said that in 2001 Toyota jointly founded ADVICS, a brake system development and marketing company, with Aisin Seiki Co Ltd, Denso Corporation and Sumitomo Electric Industries Ltd. In 2002, FAVESS Co Ltd was set up to concentrate the resources and technology of its four founding companies, Toyota, Denso, Koyo and Toyoda Machine Works with the aim of becoming the world’s leading supplier of EPS (electric power steering) and related products. Koyo and TMW then merged in January 2006 to form JTEKT.

 

In conclusion, Hatani said that restructuring’s purpose is to create and reinforce inimitable knowledge bases in the long term and that a holistic approach is essential.

 

The wide-ranging discussion following the presentations conveyed the audience’s interest in the topics raised and included questions about the diversity of employees in Japanese companies; the link between job security and job satisfaction; foreign investment in Japan; the impact restructuring has had on Toyota in terms of cost structure, efficiency and product range; the employment implications of Toyota’s restructuring and the success of Toyota as compared to Honda and Nissan.

 

Louis Turner thanked the speakers for their interesting presentations and in giving a vote of thanks, Professor David Cope, Director of the Parliamentary Office of Science and Technology, reflected on the complex and fascinating issues which had been raised, also thanking the Chair for his valuable contributions.

About the contributors